Plastic and Privacy Lead States' Online Concerns

Plastic and Privacy Lead States' Online Concerns

Dec 10, 1999

Bill Kilmartin

By Steve LeSueur, Staff Writer

SAN DIEGO ? As states quicken the pace for moving their services and operations online, government officials are dealing with the potentially contentious issues of credit card fees and Internet privacy.

None of these problems is a show stopper to electronic government, but they can be major headaches that could hamper and delay future projects, according to government and industry experts attending a recent conference on electronic commerce.

"The single greatest barrier to the wide adoption of electronic payments by the states is the cost associated with credit card fees," said Claudia Boldman, a senior analyst in Massachusetts's information technology division.

The emergence of credit card fees and other policy issues as concerns for public officials also indicates that legal and procedural issues, and not technology, are cropping up as some of the chief obstacles to online government.

"Electronic commerce in government today is more about change management than it is about technology," said Bill Kilmartin, a vice president with American Management Systems Inc. of Fairfax, Va.

Kilmartin and Boldman were among nearly 400 industry and government participants at the third annual conference of the National Electronic Commerce Coordinating Council, an organization sponsored by associations representing state auditors and comptrollers, procurement officials and chief information officers. The conference was held Nov. 11-13 in San Diego.

If government services are to be moved online, then governments must be able to accept payment for those services through credit cards and other means of electronic payments, officials said.

But credit card companies usually charge governments a variety of fees for administering the cards and covering costs for canceling charges, fraud and other expenses, just as they do in the private sector. These fees usually total about 2 percent of the total payment when citizens use credits cards, such as Visa or MasterCard, to pay for vehicle registrations, fines, professional licenses, taxes, permits and other government services.

These fees can cause a number of problems for governments. First, the small charge can add up to millions of dollars in annual operating costs for many state agencies and departments. In many states, for example, if a citizen pays $100 for a professional license or other government service, the licensing agency must send the entire $100 to the state treasury and pay the credit card fee out of its own operating budget.

Unlike companies in the private sector, governments cannot dictate that they only will do business online. Consequently, an agency's online service can become an added expense rather than a savings, because the agency still must maintain traditional services for citizens who do not have Internet access.

"We can't tell citizens we're going to close all our offices," said Boldman.

And even when the Web transactions do save governments more than the 2 percent credit card fee, the savings often comes in "man hours" rather than in actual reductions in expenditures, thus making it difficult to pay the credit card fees associated with the new online services.

The solution is to enact statutes, regulations and procedures that make it easier for agencies to accept e-payments, officials said.

The most common solutions adopted thus far are those that either allow agencies to charge citizens a convenience fee covering the credit card fees or allow agencies to retain a portion of the online revenue to cover the fees.

Some officials also suggested the states jointly request that the credit card companies reduce their fees to the states. They said the companies might be willing to do this if the states could show that, unlike the private sector, governments have relatively few fraudulent charges or canceled transactions, key drivers of the credit card fees.

"In order for governors to fully embrace e-commerce, we really need to crack this nut," said Boldman.

As governments race to conduct more business online, they also must be aware of issues related to privacy, officials said.

Government leaders got a taste of the potential trouble last year when published reports said Florida, South Carolina and other states planned to sell the personal information contained on driver's licenses, including digital photographs.

The reports ignited a public outcry and prompted Congress to pass legislation prohibiting the states from using federal transportation funds if they give third parties access to drivers' Social Security numbers, photos and other personal information without permission.

President Clinton signed the legislation Oct. 9 as part of the fiscal 2000 Transportation Appropriations Act.

While the controversy did not dampen enthusiasm for online government, it highlighted the dangers related to public information and privacy. With some companies now proposing to establish Web portals for governments in return for the rights to sell public information, some officials said they must proceed cautiously.

"I think privacy is a land mine," said Basil Nikas, chief executive officer of PublicPurchasing.Net of Bethesda, Md. "It can set e-commerce back significantly if the public thinks vendors are selling private information."

Government and industry officials noted that the presentations at this year's conference on e-commerce demonstrated state governments have made great progress in using the Internet to improve operations and services.

"We're not just talking about pilot projects now. We're looking at live models, models that are in production and working," said Richard Thompson, director of Maine's Division of Purchases.

Among the first-of-their-kind projects discussed at the conference:

? Maryland's online system for obtaining and renewing professional business licenses, which IBM Corp. of Armonk, N.Y., built for the state for about $1.5 million. The state issues and renews 170,000 professional licenses during each two-year cycle, half of which will be done over the Internet, said Harry Loleas, associate commissioner in the division of occupational and professional licensing within Maryland's Department of Labor.

? Washington's electronic tax filing system that allows companies to pay business and sales taxes over the Internet. The online forms can be tailored to individual businesses and generally take less than 10 minutes to fill out and file, said Carol O'Sullivan, electronic filing project coordinator for the state's Department of Revenue.

? Pennsylvania's online auction system that enables the state to procure certain commodities, such as coal, aluminum and road salt, through online auctions in which competitors continuously bid lower and lower prices in an effort to win a procurement. Run by FreeMarkets Inc. of Pittsburgh, the innovative process has cut the procurement cycle almost in half and saved Pennsylvania $6 million in seven different procurements since the first auction last March, said Stan Richart, a buyer supervisor in the Department of General Services.